Companies & Sectors
Festive season will have little to cheer realty industry
With affordability and safety of investment being the key for home buyers, the latest round of repo rate cut by the Reserve Bank of India (RBI) may see only a marginal improvement in demand and may not act as a catalyst to stimulate sales in this festive season.
 
After the announcement of unexpectedly high 50 basis points cut in repo rate by the RBI on September 29, it was expected that the move would improve market sentiment, leading to increased demand and more sales especially as only a part of the multiple rate cuts amounting to 75 basis points effected this year before September 29, was passed on to the consumers by the banks.
 
But now, within a week of RBI announcement, the hopes of real estate developers and home buyers seem to have been belied as the banks have not transmitted the cut to the consumers. The State Bank of India (SBI), which earlier announced a 40 basis points cut in its base rate, has now revised its decision by reducing the base rate cut by 50 percent to protect its margins.
 
Few other banks had announced 20-30 basis points cut in their base rates and home loan rates are still hovering well over nine percent. What is more confusing is the SBI's new policy to offer home loans at 20 basis points higher than the base rate to women and 25 basis points higher than the base rate to men in contrast to its earlier policy of offering home loans to women at base rate and to men at five basis points above base rate. In this scenario, the inability of the banks to transmit the RBI rate cut to home buyers is sending negative signals.
 
This has worried both the industry chambers like Assocham and Credai, the apex body of real estate developers who have demanded stimulus in the form of tax incentives and supporting measures like introduction of teaser loans besides passing on the RBI rate cut to consumers.They feel that things have hardly changed during the last one year with home sales taking a beating.
 
Despite the developers trying all kinds of marketing gimmicks including subvention schemes with upfront payment as low as 5 percent of home price, interest waiver for 2-3 years and freebies, sale velocity has not picked up. Rather, it is a matter of concern that during the first half of this year, the sales have plummeted by 50 percent.
 
Both investors and end users have deserted the residential property market - investors due to slow moving market with stagnant or dipping prices and end users due to unaffordable prices and concern about the safety of their investment because of massive delivery defaults.
 
These investor-led markets have largest number of delivery defaults and highest unsold units. NCR tops with 232,000 unsold units, followed by Mumbai with 170,000 units while Bangalore, Pune and Chennai have 111,000, 70,000 and 60,000 unsold units respectively.
 
The extraordinarily high inventory and muted sales call for price rationalisation. RBI Governor Raghuram Rajan had asked developers to cut prices to spur sales in view of high unsold inventory.
 
Even Credai chairman Irfan Razack, immediately after taking over, advised developers to offload high inventory by rationalising prices. But developers are holding on to prices on the ground that low margins due to steep rise in input costs and high cost of loan sevicing, do not give them enough leg room to bring down prices. 
 
But what they are ignoring is that the latent demand is not getting translating into sales due to affordability concerns. Today, considering the median house price to average annual income ratio, the affordability is quite low. 
 
In Delhi NCR and Mumbai markets, it is double the ideal ratio of 5-6 ,though in cities like Bangalore, the ratio is more or less favourable. Instead of offering direct price discounts, developers are offering indirect discounts in the form of club fee, registration and stamp duty waiver.
 
Besides unaffordable property prices and high interest rates, long delays in project completion is proving to be a home buyers' nightmare. It is a double whammy for them as due to delayed delivery, they are forced to bear the burden of both EMI and house rent, especially when the job market is unfavourable.
 
There is no price relief to home buyers even for newly launched projects. During festive season, it's been a standard practice with developers to launch new projects at attractive prices.
 
Developers are also banking on NRIs. They are reaching out to them through many property portals and through property fairs at their doorstep. After the devaluation of rupee against dollar,followed by cut in interest rates.NRIs are taking interest in residential property in India.
 
In addition, there are attractive financial deals and allied services like property management, PIO card, bank finance and assistance regarding fund repatriation to woo them. Quite a few developers focusing on NRIs are attributing 10-20 percent of their total sales to them.
 
However, domestic home buyers, especially end- users who form the bulk of customers, are not enthused enough to jump in the fray. They still seem to be waiting for prices to fall.And in the backdrop of interest rate dampner, it looks unlikely that this festive season will turn out to be a saviour for both developers and home buyers and the realty sector may take longer to ride out the current slowdown.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

User

COMMENTS

ANIL SHAH

1 year ago

It should read 'NCR tops with 2.32 lakh units' and not 232000 lakh units.

NARENDRA NEGANDHI

1 year ago

My comments reg so called great brand called Godrej- Property at Ahmedabad

I was very much under the awe of Parsis attitude towards everything including their contirbution to India. But alas, I made a mistake once... i invested in Godrej Garden City Ahmedabad. Please dont ever that mistake... I caution you all.
1) Booked in April 12, was promised possession March 14
2) Paid 80% by March 13 as per scheidule- no delays in payment
3) Followed up 100 times.after march 14
got a response from Adi Godrej's office- "we will revert to you".None else below even responded. even Adi's office- no further action
4) In January 15 suddenly get a mail- pay up balance otherwise......
5) Paid up balance like a poor goat on Bakri-id including the one required to be paid on possession as per order
6) Godrej gets Occupation certificate called BU in gujarat) in February 15. for inexplicable reasons do not send till May.
till then I send mails & phone calls. Except a noble girl called Tanu sharma from Godrej Mumbai- no one to help. Including Adi or Pirojsha etc....
7) then I am told that we can go over to Ahmedabad to execute the documents. List of documents, DDs or cheques for Legal costs etc all arranged.
8) Then one funny issue....Individuals have to apply for Electricity meter. You dont get it ready. It is not a part of Possession. godrej can help in temporary connection but for that pay deposit etc...... long process....
9) we go to execute the agreement on a pre scheduled day & what we find--- we have to sign in front of Godrej Employee. since lawyer had lost some family member. we still did it in July 15
10) then our form for electrical connection is taken
11) actual execution in front of registrar took place after one more month ie in August 15
12) executed document is ready in Godrej's office in September
13) the process of getting approval from Uttar gujarat Elec Supply co has now started.
14) on checking when it will be done--- response--- we dont know but say 45 days. on asking 45 days or 45 working days, the lady on phone jumps at it saying 45 working days so effectively 70 days. Poor Maths of that lady or may be she was going on leave & counted that period as non business day.
15) so now I expect the electrical connection in November 15 & then the actual possession in useful condition.
& worst of all...... Godrej charges me the maintenance from February 15 ie the day of OC..... Is it not heights...is that the "Brand Godrej?"
request all of you to share to reach Godrej seniors to look into

Economy & Nation Exclusive
Ghost savings: Government's estimated savings under DBTL fall short by just 98.87%!
The government’s most recent and much-publicised estimate shows savings of Rs12,700 crore due to reduced LPG subsidy. However, analysis done by IISD, using publicly available data, reveals maximum potential savings of Rs143.4 crore or just above 1% for FY2015
 
From 1 April 2015, the Central Government is distributing subsidy for liquefied petroleum gas scheme through direct benefit transfer (DBTL or PAHAL). Importantly, DBTL does not remove the LPG subsidy, but simply changes the mechanism by which it is delivered. There is a series of statements and media briefings by government and oil company representatives about humongous savings through the DBTL scheme. The recent one from the Chief Economic Advisor claims an estimated savings of Rs12,700 crore from the scheme. However, an analysis done by International Institute for Sustainable Development (IISD) shows that the Government's well-publicised fiscal savings figures are likely to be large overestimates and fall short by almost 99% or Rs12,557 crore. 
 
"These savings and expenditure estimates, based on publicly available data, suggest that the government’s figures for net fiscal savings resulting from DBTL are likely to be incorrect—even without accounting for the various administrative costs of program implementation – and may even have been negative," IISD said in a policy note.
 
DBTL or PAHAL is the largest unconditional cash transfer program in history. Under the DBTL, which has replaced the direct sale of cooking gas cylinders at subsidized prices, households place an order for LPG with their gas distributor, and pay the full, unsubsidized price for the refill in cash on collection or delivery. They then receive an amount equivalent to the current subsidy amount (difference between the actual price paid and the actual subsidy amount for a single refill) via electronic transfer to their bank account. In short, DBTL does not remove the LPG subsidy, but simply changes the mechanism by which it is delivered. Earlier, the customer used to pay only the amount (subsidized price) arrived after deducting the subsidy amount.
 
Despite this, the government has maintained that the introduction of DBTL will improve the operational efficiency of the LPG subsidy system, and result in significant savings in overall subsidy expenditure. Throughout the process of introducing DBTL there has, however, been a worrying lack of official clarity regarding the scheme’s actual fiscal effects, IISD said.
 
In early June 2015, Petroleum Minister Dharmendra Pradhan was quoted as claiming that "The scheme [DBTL] has helped us identify and eliminate 40 million ghost connections,” with a senior executive at Indian Oil Corp suggesting that "The government's savings could easily be about Rs10,000 crore linked to these 40 million connections”. This lead to same business daily to conclude that “the Narendra Modi-led central government is set to save a little over Rs10,000 crore in petroleum subsidy…in the current financial year [2015-16] thanks to the successful nationwide rollout of [DBTL]”.
 
On 2 July 2015, the Chief Economic Advisor stated that “Based on sales and subsidy levels for 2014-15, savings of Rs12,700 crore ($1.98 billion) are estimated from (DBTL)”.  
 
IISD said, the so far provided calculations regarding either its claimed savings from DBTL in FY 2014-15 or projected savings for FY2015-16. The much-publicized fiscal savings figure of Rs12,700 crore, in particular, deserves scrutiny: based on an analysis of publically available data, this figure seems to be a large overestimate, for the following reasons.
 
1. The current government’s implementation plan for DBTL saw the program initially reintroduced (having previously been partially implemented and subsequently suspended by the earlier United Progressive Alliance-UPA government) in 54 districts in mid-November 2014, with nationwide rollout to all districts from January 2015.
 
2. Households possessing LPG connections were given three months from the initial introduction of the scheme in their district to register their bank account details for direct payment, during which time they were still able to purchase subsidized cylinders within their quota. Following this period, households would then be able to purchase only non-subsidized domestic cylinders; however, for a further period of three months the equivalent per cylinder subsidy would be recorded and released to the consumer upon DBTL registration. 
 
For a period of seven and a half months from 1 April 2014 until 15 November 2014, the scheme therefore had no direct effect on total subsidy expenditure. DBTL only began to formally restrict access to subsidized LPG for non DBTL-registered households in mid-February 2015, and then only in the 54 districts selected in Phase 1 (representing 8% of total districts). In the remaining Phase 2 districts (constituting 92% of total districts), non-registered households retained formal access to directly subsidized LPG until 31 March 2015.
 
3. Assuming program implementation on the basis formally announced, the theoretical maximum reduction in subsidy expenditure directly attributable to DBTL in FY2014-15 can therefore be roughly calculated by applying the initial reduction in subsidised consumption (reported as 25%) to the total potential consumption available to existing connections (reported as 23.3 million), then applying the relevant data on monthly under-recoveries and fiscal subsidy to calculate the estimated ‘avoided’ expenditure figure. 
 
Note that this figure will likely represent an overestimate of the total reduction in direct subsidy expenditure achieved, as it assumes that: a) all connections unregistered as of mid-February were operational; b) that all of these connections would have used their maximum allowable allocation of 12 subsidized cylinders (rather than the national average of 6-7 cylinders) on a monthly pro-rata basis; and, c) that none of these connections would subsequently register with DBTL and receive subsidy compensation for the period from mid-February to end March. 
 
Importantly, this figure represents total ‘avoided’ subsidy expenditure, and does not take account of the profile of those connections losing subsidized access (including the percentage of total ‘avoided’ expenditure related to previously valid household consumption). 
 
Calculated on this basis, the maximum potential saving on direct subsidy expenditure from introducing DBTL was about Rs46.9 crore ($7.3 million) in February 2015 and Rs96.4 crore ($15.1 million) in March 2015, leading to a maximum potential saving from restricting access of Rs143.4 crore ($22.4 million) for the financial year—around Rs12,557 crore ($1.96 billion) less than the government’s most recent stated estimate.
 
"In short, regardless of the potential impact of introducing DBTL on total subsidised LPG consumption, it would be very difficult for the scheme to have delivered significant savings in total subsidy expenditure in FY2014-15, as the vast majority of connected households retained formal access to subsidised LPG under the previous subsidy distribution mechanism," the analysis done by IISD using publically available data shows.
 
In addition, IISD said, any calculation of savings resulting from DBTL implementation in FY2014-15 should also include the initial and recurring costs of introducing the program to the government (including central and district-level administrations, oil marketing companies and public sector banks), program beneficiaries, and the wider economy. 
 
While some of these costs are widely distributed and challenging to record precisely, information on key areas of operational expenditure—including commission on subsidy payments and advance payments to beneficiaries—is readily available.
 
For example, the cost of commission on all subsidy payments made through direct transfer (initially set at 1% of total transaction size and proposed to be raised to 2%—a rate that is nevertheless estimated to remain un-remunerative) was in itself largely sufficient to offset any direct saving on subsidy expenditure in FY2014-15. 
 
In the case of the ‘permanent advance’ payments provided to all newly-registered DBTL customers upon initial cylinder booking—the costs of which are currently borne by the public sector oil marketing companies—households that had previously registered under the initial direct transfer scheme in FY2013-14 received an advance of Rs435 per connection, constituting a total payment of Rs1,469 crore ($229.5 million) in FY2013-14. 
 
Under the revised scheme introduced by the National Democratic Alliance (NDA) government, this permanent advance was increased to Rs568 for the period to end March 2015, with payments provided as permanent advance in FY2014-15 alone amounting to Rs5,234 crore ($817.8 million), IISD said quoting reliable sources.
 
"In order to have an informed discussion regarding the impact of DBTL, both as a program itself and as a proposed model for the reform of kerosene and food subsidies, it is crucial that the government provides detailed and accurate data on the way that subsidy savings are calculated," IISD concluded.

User

COMMENTS

sohan modak

1 year ago

Why is the Government lying? Is it to create a hype? What is CAG saying?

R Balakrishnan

1 year ago

How the government will improve savings is by NOT transferring the subsidy to the bank accounts. Those who shout enough will get. Most will not and thereby the govt can save. Unless of course, the politicians find a way to take it away.. Impossible is nothing

Shashank S

1 year ago

This is nothing but a half baked hitjob (Personal Opinion).

What i read from twitter is Moneylife quoted an IITD prof. who is a petioner against AADHAR in Supreme court. If true, please issue a disclaimer.

vnrao

1 year ago

from the begining whole exercise of voluntary is wrong concept in the scenorio when the rulers behaving like bandicoots try make as much as possible within short span of time it is a waste of public money on advt

Mahesh S Bhatt

1 year ago

Squeeze the poor & spare the rich.

Small good deeds large bad deeds.

This policy has led to chaos.

Lets reverse

Gupta

1 year ago

I submitted the form for registration for this DBTL scheme to my HP distributor in April 2015. However, it is sitting in their files pending for processing. In June, when I followed up, I was told that there is a lot of "backlog" to process the forms and it will take another 1 month for my application to be registered to start getting subsidy. It is now Oct and my form is still to be processed. This is how the savings are being generated by not registering people under the scheme!

Deepak Mohan

1 year ago

This is spurious logic - govt is claiming for 2015- 16 and the analysis is for 2015 and you guys have indulged in sensationalism... Shame....

REPLY

Senthil SP

In Reply to Deepak Mohan 1 year ago

Moneylife has become a Mainstream sh!t long back. Expect more like these in the future

Anil Agashe

1 year ago

Tall claims are to be expected from this government about everything!
The total savings must because of the huge success as claimed by PM himself of people giving up subsidy on LPG. I read somewhere that 30k people were doing this daily!
The calculation is probably based on the difference between old subsidy and hte current one due to fall in international prices of crude!

Gopalakrishnan T V

1 year ago

The expectation of the Government to voluntarily surrender the subsidy by the people is a mistake in a country where corruption, black money and making money by all unethical means ignoring the laws of the land is very common and even filing of tax returns by those who really make money is absent. The best way for the Government to do away with the subsidy for those who make money in lakhs and crores by way of salary, bonus and dividends. Further make it compulsory that no Parliamentarian, MLA, bureaucrat and those who earn high salaries in banks, IT , and health sector will draw the subsidy for the LPG. Like wise all professionals like Doctors, lawers, Chartered Accountants, Consultants in varius fields, auditors, contractors,etc should not be elible for the subsidy by means of an order. Those who are really Under BPL only should draw the subsidy and the Government has to ensure that the data on BPL category are rightly compiled. If it is done like that the payment of subsidy figure will come down and the Government can reach the target envisaged.

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